Target Seeks New CFO As Retailer Focuses On Turnaround Efforts -- WSJ

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01/11/2019 | 02:48am EST

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By Nina Trentmann

Target Corp. is launching its search for a new finance chief at a crucial time: After a strong holiday season, the Minneapolis-based retailer needs to keep the momentum going while experimenting with new ways to reach its customers to compete with e-commerce rivals.

The store operator announced Thursday that Chief Financial Officer Cathy Smith plans to step down once a successor has been named and move on to an advisory role until May 2020.

Ms. Smith, who became Target's CFO in 2015 after stints at Express Scripts Holding Co., Walmart Inc. and GameStop Corp., said she intends to spend more time with her family. Target said it has commenced the search for her replacement.

Target's new finance chief will have to allocate enough capital for the company's transformation efforts while making sure that it remains tactical about its investments, analysts said. This includes spending on the company's digital shopping platforms.

"That person will have to manage the books while being able to say no to certain spending plans," said Joseph Feldman, an analyst at Telsey Advisory Group.

Ms. Smith's departure comes after a period of significant change at Target during which the retailer overhauled its merchandising, brushed up the look and feel of its 1,850 U.S. stores and expanded its e-commerce channels. Under Chief Executive Brian Cornell, the company since 2014 has embarked on a turnaround strategy that has won the approval of analysts and investors.

Ms. Smith was an important contributor to the transformation program, and her expertise and leadership have helped position the company for long-term growth, analysts and executives said.

"The next person in that chair has some big shoes to fill," said Charles O'Shea, a senior credit officer at Moody's Investors Service.

Part of the turnaround program was a step-up in capital expenditures, which were forecast to rise to approximately $3.5 billion in 2018, up from around $2.5 billion the year before. Wages went up, helping the company improve its hiring and training of workers. Meanwhile, stores were remodeled, as Target's management sought to regain lost ground from competitors.

To compete with online-only retailers and other bricks-and-mortar businesses, Target has developed new formats beyond the traditional big box. The tactic helps boost the brand in urban locations such as New York, where the real-estate market makes it harder to build the kind of wide-ranging, one-story store that suburban customers have come to know.

The company also is experimenting with new delivery options for customers, including the option to pickup online purchases at the store. It also is testing supply-chain enhancements, including how to best pack a truck.

"We are looking for a customer-focused business leader who can partner effectively in strategy and operations to build the business and drive continued growth, profitability and commercial success for the company," Target said.

The company is well-positioned to gain market share from other retailers, including J.C. Penney Co. and bankrupt Sears Holding Corp., said Edward Yruma, an analyst at KeyBanc Capital Markets Inc. "Ms. Smith's successor steps into a Target that is much better positioned," Mr. Yruma said.

But changes don't happen overnight. "You cannot spend all at once," said Mr. O'Shea of Moody's, adding that the Target management needs to continue executing on its strategy.

"The next CFO will need to focus most on managing the return on investment on digital capability builds, finding the right point on the curve to drive innovation without destroying returns," said David Schick, managing partner at Consumer Edge Research LLC.

Similar to rivals Walmart, Costco Wholesale Corp. and Bed Bath & Beyond Inc., Target reported higher sales during the crucial Christmas shopping period. Sales rose 5.7% between Nov. 4 and Jan. 5 in stores and through company websites, up from 3.4% sales growth reported during the same period last year.